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Should I get an HST Number?
A question we get all the time is when should I register my business for HST? As a small business, you normally charge a 13% sales tax on certain goods and services sold in Ontario. The threshold that you need to be aware of is $30,000 in SALES. We emphasize sales because it’s how much you sell in dollar value vs. how much you actually get to take home (your net pay).
Before you hit $30,000 in sales, you don’t have to register for an HST number and charge your clients tax. Isn’t that a great selling feature? Your customers must feel happy not having to pay tax. Well we certainly love to make our clients happy. Unfortunately it’s not always best practice to not register and registering can actually be in your benefit depending on the type of business you’re running.
How can it benefit you?
HST is great for capital intensive businesses; or in other words businesses that spend a lot and potentially have property plant or equipment assets that they have to purchase. How HST works for business is pretty straight forward. What you spend in HST buying equipment/furniture and anything which requires you to pay a 13% tax, you can potentially get all of that tax back. What? you can get all the sales tax that you pay back into your pocket? Well hypothetically speaking in a perfect world, if customers have not paid you then yes, this is a true statement. When you are first starting your business and spend hundreds and thousands on HST you can potentially get it back if no customers have paid HST. Think of HST like a seesaw, when you pay out HST, you are technically adding towards a “refund” for your business. However when you collect HST from your customers by selling goods and services, you are “owing” the CRA this amount. At the end of the period, depending on when you file HST, you may be “owing” or in a situation to get a “refund”. This is based on the difference between what you paid vs. what you collected.
HST can be of benefit to businesses to get some money back for paying out for expenses. Don’t think charging HST is a bad thing as it comes with a great advantage. Remember, if you “owe” the government money, you have already collected it from the customer hence you technically owe nothing. Also, it takes the difference between what you owe vs. what you paid out so you technically still get a refund as you are only paying the difference.
John starts a business and has spent $1000 paying HST for all the goods he has purchased. John is entitled to a $0 refund because John is not registered for HST, hence he not charge sales tax to his customer or claim it.
John starts a business and has spent $1000 paying HST for all the goods he has purchased. John has collected $500 in HST from his customers for services rendered. John files for HST and gets a refund of $500 from the CRA.
John starts a business and has spent $500 paying HST for all the goods he has purchased. John has collected $1000 in HST from his customers for services rendered. John files for HST and owe’s $500 to the CRA.
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